Escalating losses on so-called tracker home loan mortgages are the next big headache for the Irish authorities and their bailout lenders as they try to get a grip on the country’s legacy banking debts…

Amid the turmoil about the future of the euro, the latest survey data showing that output from Irish manufacturing plants contracted last month provides a warning that the apparent Irish tolerance for austerity could unravel soon.

Unless the European Central Bank acts there will be a full blown recession in the euro area next year, and the manufacturing data shows time is running out, said Brian Devine, chief economist at NCB. This matters a good deal to Ireland because its large number of international pharmaceutical and technology plants rely on export orders from the euro zone and the U.S.

Snuff out euro zone growth and the painful measures the Irish have endured over the last three years to deal with their own deep banking debt crisis will count for naught. Without growth, the trail set a year ago by the country’s bailout lenders–the European Union, International Monetary Fund and ECB—will get much more rugged.

Another day another blunderbuss permanent solution to save the euro zone forever and to stave off panic.

After the rising tide of panic during the past couple of weeks that sent yields soaring on euro-zone government debt and even caused investors to turn their backs on German debt, reports that euro-zone governments have finally come up with a plan, a real plan this time, sent equity markets soaring.

These short squeezes are symptomatic of investors’ general panickiness. They stampede out of assets when they worry things are going bad and then back into them when there’s the risk something might be resolved. Hence the very high correlation between assets, within asset classes, between countries and any other permutation you might care to name.

So is the latest version likely to be any better than the rest of the failed agreements and half measures launched during the past year or two?

In its earlier phases, the euro zone’s debt crisis conformed to a fairly simple thesis: exacerbated rather than smoothed over by currency union, a long mismatch between the bloc’s strong northern core and its weak Mediterranean periphery was coming to a volcanic head.

This view displaced struggling Ireland and Portugal to the Med, of course, but no matter. We can’t have trivia such as geography getting in the way of the kind of simple model investors love.

The euro zone’s financial crisis — and there’s now no other word than crisis for the current trauma — is poised to deepen further. Contagion has already begun to spread from the “peripheral” euro-zone countries, such as Italy and Spain, Greece, Portugal and Ireland, to what might be called the “soft core” countries such as France and Belgium.

But watch out for further contagion to “hard core” countries such as Austria, the Netherlands and Finland. In fact, if the trend continues, the core may soon consist of Germany alone.

On the other side of the coin, 10-year U.K. gilts, seen as a safe haven alongside German bunds, fell to a new record low yield of just 2.13%.

Over in the market for credit default swaps, the cost of insuring Italian, Spanish, French and Belgian debt against default shot to fresh record highs while Italian CDS hit the 600 basis points level for the first time. But worrying as all this is, it’s nothing to the signs that even triple-A rated countries such as the Netherlands, Finland and Austria are not immune from contagion.

Austerity is no longer the cure-all it once was. And the euro zone may have to find a new fix.

When the euro-zone debt crisis first erupted several years ago, debtor nations were urged to raise taxes and cut public spending to get their fiscal books in order.

This was all very well as long as external growth, i.e. exports, were able to help offset the contraction in the domestic economies of many of these peripheral nations.

Stronger euro-zone members, such as Germany, would still buy their goods and keep their industries in business. Taxes would continue to flow into government coffers and sovereign debts could still be serviced.

But, as we have seen in Greece in recent months, without external growth, the whole economy contracts and the government is forced to seek even more help from abroad to keep afloat.

As the euro zone shudders with stress over Italy, sterling fans (there must be some out there somewhere) may have Ireland to thank for a relatively smooth ride.

The U.K. is vulnerable to the chance of an even nastier slowdown in the euro area–a huge trading partner. But U.K. bank exposure to the euro zone’s debt crisis is primarily through Ireland. And of all the euro-zone members currently in intensive care, the Emerald Isle appears to be recuperating best.

That’s reflected in the credit derivatives market, where the cost of insuring Irish government debt against possible default has shrunk by about 40% from its July peak.

Though still pricey at more than $700,000 annually to insure $10 million of five-year Irish bonds, the cost is low compared with fellow bailout recipients Greece and Portugal, indicating that investors believe Irish efforts to get its fiscal house in order are credible, at least for now.

Finding billions of euros down the back of the couch would normally be a cause for celebration for a broke exchequer. But Irish government officials appeared more red-faced than jubilant when it was revealed Tuesday their coffers were fuller than first thought because €3.6 billion had been mistakenly counted toward an already huge debt load last year.

Loans made by the country’s debt office–the National Treasury Management Agency–to another arm of government that provides affordable housing had been mistakenly counted as part of the national debt. Overseen by the finance ministry, Ireland’s so-called government general debt was therefore €144.4 billion, rather than the published €148 billion in 2010, the authorities explained.

And as the finance ministry and the debt agency separately briefed journalists their embarrassment was palpable, and not only because the Irish parliament’s Public Accounts Committee–led by the main opposition party that was thrown out of power last March–said it would investigate who knew what and when about the accounting oversight.

As any auditor knows, the discovery of a favorable accounting error is as bad as discovering a loss-making one: it raises questions about whether more mistakes lurk elsewhere.

Harnessing what it calls the “soft power” of the global network of Irish business leaders is not a new idea by any means. The Irish-American business diaspora lent invaluable support in the early days of the Irish peace process , helping end decades of political violence between conflicting British and Irish national identities in Northern Ireland. And some of the same business leaders who played a starring role then are among the delegates attending the economic gathering in Dublin Castle though Saturday.

Key developments on the Europe’s crisis horizon include parliamentary votes across the euro zone to ratify a July 21 agreement to beef up the 17-member currency bloc’s rescue fund, the European Financial Stability Facility.

So far, Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Portugal, Slovenia and Spain have ratified the EFSF’s expansion and new powers, including the right to purchase bonds in the secondary market and provide funds to recapitalize banks.